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DEPUTY COMMISSIONER OF INCOME-TAX Versus DHANRAJGIR BUSINESS P. LTD. (and vice versa)

2015 (11) TMI 576 - ITAT MUMBAI

Reopening of assessment - income of the assessee should be assessed under the head "Income from house property" whereas in the impugned assessment order passed in pursuance of such reasons recorded the Assessing Officer has treated the income to be assessed under the head "Income from other sources" - Held that:- In the assessment year 2007- 08, the assessee admitted that income from flats owned by the assessee should be assessed as income from house property. Up to the assessment year 2001- 02, .....

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er for reopening the case under section 147 is bad in law as there is no reason to believe or any relevant material on the basis of which the assessee's case can be reopened. Accordingly, the entire proceedings initiated vide notice under section 148 of the Act, is void ab initio and consequently the assessment orders are quashed. - Decided in favour of assessee. - I. T. A. Nos. 8315 and 8323 /Mum/ 2011andC. O. Nos. 241 /Mum/ 2012 - Dated:- 8-4-2015 - B. R. BASKARAN (Accountant Member) and AMIT .....

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143(3) read with section 147 of the Income-tax Act, 1961. In the cross- objections the assessee has challenged the validity of reopening of the assessment under section 147 of the Act on the ground that initiation of proceedings under section 147 of the Act based on the "reasons recorded" is bad in law. The Revenue has mainly challenged the impugned order on merits, on the ground that the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in treating the income .....

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. The assessee had taken over several flats at Chatrapati Shivaji Marg, Mumbai on tenancy basis and income from these flats was shown in the return of income as income received in respect of licence fee and service charges receivable from the tenants and was declared as income from business activity. This was shown up to the assessment year 2001-02 and was also accepted and assessed under the head "business income" by the Department. The return for the assessment years 2003-04 and 2004 .....

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on the following "reasons recorded" which is similarly recorded for both years. The "reasons recorded" for the assessment year 2003-04 is as under : For the assessment year 2003-04, you have shown income under the head licence of fees ₹ 3,30,967, service charges ₹ 33,05,328, interest on security deposit ₹ 44,377, interest on fixed deposit with Deutche Bank ₹ 7,36,405, interest on Income-tax refund ₹ 12,907 and provision for deferred tax asset  .....

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have claimed the expenditure at a figure more than what was allowable as per provisions of section 24(1) of the Act. In view of the above, there being abundant reason to believe that there has been a substantial escapement of income under section 147 of the Act and after taking the approval of the Additional Commissioner of Income-tax, Range-2(1), Mumbai, the assessment for the assessment year 2003-04 has been reopened after issue of notice under section 148 of the Act on March 23, 2010. 3. In r .....

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said as correct unless it is established that such receipts have arisen from the building owned by the company. This is clear from the language of section 22 of the Act. The relevant provisions are reproduced for sake of convenience as under : 'The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner . . . shall be chargeable to income tax under the head "Income from house property".' The factual position emerging .....

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ss ment year 2007-08 recently further confirms the fact regarding, assessability of licence fee and service charges from these six flats under the head business as the company is not the owner. Three flats, viz, E-26A and C-10A owned by the company and for which licence fee and service charges have been assessed as income from house property in the order under section 143(a) of the Act for assessment year 2007-08 were not purchased during the periods relevant to the assessment years 2003-04 or 2 .....

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and March 31, 2005. Hence there cannot be any reasonable belief to hold that licence fee and service charges attribut able to flats owned by the company has escaped assessment by not considering such receipts as income from house property in the assessment years 2003-04 and 2004-05. It is well-settled that belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or in other words must be based on reasons which are relevant and material to the facts .....

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Ram Rawatmull [1973] 87 ITR 349 (SC) and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). In the circumstances, proceedings initiated under section 147 of the Act in respect of the assessment years 2003-04 and 2004-05 are required to be dropped." 4. The learned Assessing Officer dismissed the assessee's objection on the ground that on the same flats, the income has been treated as income from house property in the assessment order passed under section 143(3) of the Act for the assess .....

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ng Officer has held it to be income received from tenancy which is taxable under the head "Income from house property" and therefore, he had prima facie good reason to reopen the case for the assessment years 2003-04 and 2004-05 and to disallow the business expenses claimed by the assessee. 6. Before us learned senior counsel, Shri Firoze B. Andhyarujina submitted that, from the bare perusal of the "reasons recorded" it can be seen that the Assessing Officer did not have any .....

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quot;. Otherwise also in the assessment year 2007-08, the matter had travelled up to the stage of the Income-tax Appellate Tribunal, wherein the Tribunal, so far as service charges was concerned, the same was treated as business income and licence fee received was treated as income from house property. Now in the impugned assessment order, the Assessing Officer has taken entirely different stand altogether and instead has taxed the receipts under the head "Income from other sources". T .....

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Bom). 7. Thus, he submitted that the "reasons recorded" by the Assessing Officer for reopening the case are not based on "reasons to believe" as contemplated under the law and therefore, the entire proceedings initiated vide notice dated March 23, 2010 under section 148 of the Act is bad in law. 8. On the other hand, the learned Departmental representative submitted that, at the time of "reasons recorded", the Assessing Officer did have prima facie reasons to believ .....

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eived from tenancy is taxable under the head "Income from house property", therefore, it was sufficient material for reopening the case for impugned assessment years. 9. We have heard the rival submissions qua the issue raised on the validity of reopening under section 147 of the Act vis-a-vis material placed on record. It is an undisputed fact that the assessee's return of income was accepted under section 143(1) of the Act and accordingly, the returned income had attained finalit .....

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ason to believe or not is always a question of a jurisdiction which needs to be examined whether such a completed assessment can be reopened within the frame work of law. The hon'ble Supreme Court in the case of Ganga Saran and Sons P. Ltd. v. ITO reported in [1981] 130 ITR 1 (SC), held that the word "reason to believe" is much stronger than the words "is satisfied". The belief entertained by the Assessing Officer must not be arbitrary or irrational as it must be based on .....

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the perusal of the "reasons recorded", it is evident that the Assessing Officer has entertained "reason to believe" merely on the ground that certain receipts of income has been shown by the assessee under the head "Business income" instead of "Income from house property" and therefore, expenses claimed by the assessee are not allowable. In the "reasons recorded", he has not mentioned as to what is the material or information which has come to h .....

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rial, then also same cannot be held to be relevant for reopening the case under section 147 of the Act, because it is a matter of record that the assessment order for the assessment year 2007-08 has been partly reversed by the Tribunal, wherein it was held that the income of the assessee in the form service charges and other receipts from the flats not owned by the assessee cannot be taxed under the head "Income from house property". It is also a matter of record that during the releva .....

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ar fact is that, in the reasons recorded, the Assessing Officer has entertained reason to believe that income of the assessee should be assessed under the head "Income from house property" whereas in the impugned assessment order passed in pursuance of such reasons recorded the Assessing Officer has treated the income to be assessed under the head "Income from other sources". Thus, the very premise and the basis on which "reasons" were recorded and "reason to b .....

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rought to the notice of the Assessing Officer that the flats were acquired by the assessee in the subsequent year. During these period the flats were taken on tenancy basis, from which the assessee earned the income and it was only from the assessment year 2005-06, when the assessee had purchased these flats and became the owner. It was in this background that in the assessment year 2007- 08, the assessee admitted that income from flats owned by the assessee should be assessed as income from hou .....

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